A Note on Option Pricing with the Use of Discrete-Time Stochastic Volatility Processes

In this paper we show that in the lognormal discrete-time stochastic volatility model with predictable conditional expected returns, the conditional expected value of the discounted payoff of a European call option is infinite. Our empirical illustration shows that the characteristics of the predictive distributions of the discounted payoffs, obtained using Monte Carlo methods, do not indicate directly that the expected discounted payoffs are infinite.

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Year of publication:	2009
Authors:	Pajor, Anna
Published in:	Central European Journal of Economic Modelling and Econometrics. - CEJEME. - Vol. 1.2009, 1, p. 71-81
Publisher:	CEJEME
Subject:	option pricing \| SV model \| Bayesian forecasting

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Extent:	application/pdf
Type of publication:	Article
Language:	English
Classification:	C11 - Bayesian Analysis ; C22 - Time-Series Models ; C53 - Forecasting and Other Model Applications
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10005064790